Palomar Holdings, Inc. Reports Third Quarter 2023 Results

November 1, 2023

LA JOLLA, Calif., Nov. 01, 2023 (GLOBE NEWSWIRE) --  Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or “Company”) reported net income of $18.4 million, or $0.73 per diluted share, for the third quarter of 2023 compared to net income of $4.3 million, or $0.17 per diluted share, for the third quarter of 2022. Adjusted net income(1) was $23.3 million, or $0.92 per diluted share, for the third quarter of 2023 as compared to $9.2 million, or $0.36 per diluted share, for the third quarter of 2022. Effective December 31, 2022, the Company adjusts for net realized and unrealized gains and losses when calculating and presenting adjusted net income, diluted adjusted earnings per share, and adjusted return on equity. All prior period amounts have been adjusted accordingly.

Third Quarter 2023 Highlights

  • Gross written premiums increased by 24.0% to $314.0 million compared to $253.1 million in the third quarter of 2022
  • Net income of $18.4 million, compared to $4.3 million in the third quarter of 2022
  • Adjusted net income(1) of $23.3 million, compared to $9.2 million in the third quarter of 2022
  • Total loss ratio of 18.8% compared to 39.6% in the third quarter of 2022
  • Combined ratio of 75.8% compared to 94.8% in the third quarter of 2022
  • Adjusted combined ratio(1) of 70.9%, compared to 90.3%, in the third quarter of 2022
  • Annualized return on equity of 17.7%, compared to 4.6% in the third quarter of 2022
  • Annualized adjusted return on equity(1) of 22.3%, compared to 9.9% in the third quarter of 2022

(1) See discussion of Non-GAAP and Key Performance Indicators below.

Mac Armstrong, Chairman and Chief Executive Officer, commented, “We are very pleased with our strong third quarter. The results included record quarterly gross written premium, adjusted net income growth of 153%, and an adjusted return on equity of 22.3%. Our concerted effort over the last several years to reduce the volatility in our book of business and earnings base was also on full display in the third quarter as we incurred negligible loss from catastrophes despite elevated activity across the industry. The execution of our Palomar 2X strategic plan during the quarter instills a high level of confidence that Palomar will produce consistent profitable growth in the quarters and years ahead."

Mr. Armstrong continued, “In addition to the strong underwriting results, we also continued to invest in growth across the organization. Beyond growing gross written premium 24% year-over-year, during the quarter we hired an experienced leader to build an Environmental practice, wrote our first Crop premium, and established new fronting partnerships. Overall, we continue to dedicate our capital and resources towards targeted segments of our book of business that maximize our risk-adjusted returns.”

Underwriting Results

Gross written premiums increased 24.0% to $314.0 million compared to $253.1 million in the third quarter of 2022, while net earned premiums increased 10.1% compared to the prior year’s third quarter. Excluding de-emphasized lines of business, gross written premiums increased 30.6% in the third quarter.

Losses and loss adjustment expenses for the third quarter were $16.1 million, comprised of $16.7 million of non-catastrophe attritional losses, offset by $0.5 million of favorable catastrophe development from prior periods. The loss ratio for the quarter was 18.8%, comprised of a catastrophe loss ratio(1) of -0.6% and an attritional loss ratio of 19.4%, compared to a loss ratio of 39.6% during the same period last year comprised of a catastrophe loss ratio(1) of 16.0% and attritional loss ratio of 23.6%.

Underwriting income(1) for the third quarter was $20.7 million resulting in a combined ratio of 75.8% compared to underwriting income of $4.1 million resulting in a combined ratio of 94.8% during the same period last year. The Company’s adjusted underwriting income(1) was $25.0 million resulting in an adjusted combined ratio(1) of 70.9% in the third quarter compared to adjusted underwriting income(1) of $7.5 million and an adjusted combined ratio(1) of 90.3% during the same period last year.

Investment Results
Net investment income increased by 61.0% to $6.0 million compared to $3.7 million in the prior year’s third quarter. The increase was primarily due to higher yields on invested assets and a higher average balance of investments held during the three months ended September 30, 2023 due to cash generated from operations. The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 3.61 years at September 30, 2023. Cash and invested assets totaled $688.0 million at September 30, 2023. During the third quarter, the Company recorded net realized and unrealized losses of $1.4 million related to its investment portfolio as compared to net realized and unrealized losses of $2.4 million in last year’s third quarter.

Tax Rate
The effective tax rate for the three months ended September 30, 2023 was 24.9% compared to 17.5% for the three months ended September 30, 2022. For the current quarter, the Company’s income tax rate differed from the statutory rate due primarily to the non-deductible executive compensation expense.

Stockholders Equity and Returns
Stockholders' equity was $421.3 million at September 30, 2023, compared to $367.8 million at September 30, 2022. For the three months ended September 30, 2023, the Company’s annualized return on equity was 17.7% compared to 4.6% for the same period in the prior year while adjusted return on equity(1) was 22.3% compared to 9.9% for the same period in the prior year. During the current quarter, the Company repurchased 117,739 shares for $6.6 million pursuant to the Company’s previously announced $100 million share repurchase authorization. As of September 30, 2023, $43.5 million remains available for future repurchases.

Full Year 2023 Outlook
For the full year 2023, the Company expects to achieve adjusted net income of $90 million to $93 million. This includes $3.4 million of catastrophe losses incurred during the nine months ended September 30, 2023.

Conference Call
As previously announced, Palomar will host a conference call Thursday November 2, 2023, to discuss its third quarter 2023 results at 12:00 p.m. (Eastern Time). The conference call can be accessed live by dialing 1-877-423-9813 or for international callers, 1-201-689-8573, and requesting to be joined to the Palomar Third Quarter 2023 Earnings Conference Call. A replay will be available starting at 4:00 p.m. (Eastern Time) on November 2, 2023, and can be accessed by dialing 1-844-512-2921, or for international callers, 1-412-317-6671. The passcode for the replay is 13737957. The replay will be available until 11:59 p.m. (Eastern Time) on November 9, 2023.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company’s website at http://ir.palomarspecialty.com/. The online replay will remain available for a limited time beginning immediately following the call.

About Palomar Holdings, Inc.
Palomar Holdings, Inc. is the holding company of subsidiaries Palomar Specialty Insurance Company (“PSIC”), Palomar Specialty Reinsurance Company Bermuda Ltd., Palomar Insurance Agency, Inc., Palomar Excess and Surplus Insurance Company (“PESIC”), and Palomar Underwriters Exchange Organization, Inc. Palomar is an innovative insurer serving residential and commercial clients in specialty markets including the market for earthquake insurance. Palomar’s insurance subsidiaries, Palomar Specialty Insurance Company, Palomar Specialty Reinsurance Company Bermuda Ltd., and Palomar Excess and Surplus Insurance Company, have a financial strength rating of “A-” (Excellent) from A.M. Best. 
To learn more, visit PLMR.com.

Non-GAAP and Key Performance Indicators

Palomar discusses certain key performance indicators, described below, which provide useful information about the Company’s business and the operational factors underlying the Company’s financial performance.

Underwriting revenue is a non-GAAP financial measure defined as total revenue, excluding net investment income and net realized and unrealized gains and losses on investments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of total revenue calculated in accordance with GAAP to underwriting revenue.

Underwriting income is a non-GAAP financial measure defined as income before income taxes excluding net investment income, net realized and unrealized gains and losses on investments, and interest expense. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of income before income taxes calculated in accordance with GAAP to underwriting income.

Adjusted net income is a non-GAAP financial measure defined as net income excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook, net of tax impact. Palomar calculates the tax impact only on adjustments which would be included in calculating the Company’s income tax expense using the estimated tax rate at which the company received a deduction for these adjustments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income calculated in accordance with GAAP to adjusted net income.

Annualized Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

Annualized adjusted return on equity is a non-GAAP financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of return on equity calculated using unadjusted GAAP numbers to adjusted return on equity.

Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses, to net earned premiums.

Expense ratio, expressed as a percentage, is the ratio of acquisition and other underwriting expenses, net of commission and other income to net earned premiums.

Combined ratio is defined as the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.

Adjusted combined ratio is a non-GAAP financial measure defined as the sum of the loss ratio and the expense ratio calculated excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio.

Diluted adjusted earnings per share is a non-GAAP financial measure defined as adjusted net income divided by the weighted-average common shares outstanding for the period, reflecting the dilution which could occur if equity-based awards are converted into common share equivalents as calculated using the treasury stock method. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of diluted earnings per share calculated in accordance with GAAP to diluted adjusted earnings per share.

Catastrophe loss ratio is a non-GAAP financial measure defined as the ratio of catastrophe losses to net earned premiums. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of loss ratio calculated using unadjusted GAAP numbers to catastrophe loss ratio.

Adjusted combined ratio excluding catastrophe losses is a non-GAAP financial measure defined as adjusted combined ratio excluding the impact of catastrophe losses. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio excluding catastrophe losses.

Adjusted underwriting income is a non-GAAP financial measure defined as underwriting income excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of income before income taxes calculated in accordance with GAAP to adjusted underwriting income.

Tangible stockholders equity is a non-GAAP financial measure defined as stockholders’ equity less goodwill and intangible assets. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of stockholders’ equity calculated in accordance with GAAP to tangible stockholders’ equity.

Safe Harbor Statement
Palomar cautions you that statements contained in this press release may regard matters that are not historical facts but are forward-looking statements. These statements are based on the company’s current beliefs and expectations. The inclusion of forward-looking statements should not be regarded as a representation by Palomar that any of its plans will be achieved. Actual results may differ from those set forth in this press release due to the risks and uncertainties inherent in the Company’s business. The forward-looking statements are typically, but not always, identified through use of the words "believe," "expect," "enable," "may," "will," "could," "intends," "estimate," "anticipate," "plan," "predict," "probable," "potential," "possible," "should," "continue," and other words of similar meaning. Actual results could differ materially from the expectations contained in forward-looking statements as a result of several factors, including unexpected expenditures and costs, unexpected results or delays in development and regulatory review, regulatory approval requirements, the frequency and severity of adverse events and competitive conditions. These and other factors that may result in differences are discussed in greater detail in the Company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and the Company undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Contact
Media Inquiries 
Lindsay Conner 
1-551-206-6217 
lconner@plmr.com

Investor Relations
Jamie Lillis
1-203-428-3223
investors@plmr.com
Source: Palomar Holdings, Inc.


Summary of Operating Results:

The following tables summarize the Company’s results for the three and nine months ended September 30, 2023 and 2022:

  Three Months Ended                  
  September 30,                  
  2023     2022     Change     % Change  
  ($ in thousands, except per share data)  
Gross written premiums $ 313,998     $ 253,128     $ 60,870       24.0 %
Ceded written premiums   (203,336 )     (161,930 )     (41,406 )     25.6 %
Net written premiums   110,662       91,198       19,464       21.3 %
Net earned premiums   85,817       77,942       7,875       10.1 %
Commission and other income   465       1,362       (897 )     (65.9 )%
Total underwriting revenue(1)   86,282       79,304       6,978       8.8 %
Losses and loss adjustment expenses   16,139       30,900       (14,761 )     (47.8 )%
Acquisition expenses, net of ceding commissions and fronting fees   27,004       27,210       (206 )     (0.8 )%
Other underwriting expenses   22,390       17,114       5,276       30.8 %
Underwriting income(1)   20,749       4,080       16,669       NM  
Interest expense   (867 )     (270 )     (597 )     221.1 %
Net investment income   6,029       3,744       2,285       61.0 %
Net realized and unrealized losses on investments   (1,376 )     (2,356 )     980       (41.6 )%
Income before income taxes   24,535       5,198       19,337       NM  
Income tax expense   6,103       912       5,191       NM  
Net income $ 18,432     $ 4,286     $ 14,146       NM  
Adjustments:                              
Net realized and unrealized losses on investments(2)   1,376       2,356       (980 )     (41.6 )%
Expenses associated with transactions   229       45       184       NM  
Stock-based compensation expense   3,589       3,092       497       16.1 %
Amortization of intangibles   390       313       77       24.6 %
Tax impact   (725 )     (871 )     146       (16.8 )%
Adjusted net income(1)(2) $ 23,291     $ 9,221     $ 14,070       152.6 %
Key Financial and Operating Metrics                              
Annualized return on equity   17.7 %     4.6 %                
Annualized adjusted return on equity(1)   22.3 %     9.9 %                
Loss ratio   18.8 %     39.6 %                
Expense ratio   57.0 %     55.1 %                
Combined ratio   75.8 %     94.8 %                
Adjusted combined ratio(1)   70.9 %     90.3 %                
Diluted earnings per share $ 0.73     $ 0.17                  
Diluted adjusted earnings per share(1) $ 0.92     $ 0.36                  
Catastrophe losses $ (533 )   $ 12,500                  
Catastrophe loss ratio(1)   (0.6 )%     16.0 %                
Adjusted combined ratio excluding catastrophe losses(1)   71.5 %     74.3 %                
Adjusted underwriting income(1) $ 24,957     $ 7,530     $ 17,427       231.4 %

NM- Not Meaningful

(1)- Indicates Non-GAAP financial measure- see above for definition of Non-GAAP financial measures and see below for reconciliation of Non-GAAP financial measures to their most directly comparable measures prepared in accordance with GAAP.

(2)- We now include the impact of net realized and unrealized losses and gains on investments as an adjustment to our net income. As this line is primarily driven by equity market fluctuations rather than our underlying business performance, we believe adding this adjustment provides a more meaningful comparison of our performance. We have also changed the prior year adjusted net income to conform to this presentation.


  Nine Months Ended                  
  September 30,                  
  2023     2022     Change     % Change  
  ($ in thousands, except per share data)  
Gross written premiums $ 838,406     $ 642,751     $ 195,655       30.4 %
Ceded written premiums   (542,789 )     (374,109 )     (168,680 )     45.1 %
Net written premiums   295,617       268,642       26,975       10.0 %
Net earned premiums   252,164       234,239       17,925       7.7 %
Commission and other income   1,781       3,129       (1,348 )     (43.1 )%
Total underwriting revenue(1)   253,945       237,368       16,577       7.0 %
Losses and loss adjustment expenses   54,696       60,251       (5,555 )     (9.2 )%
Acquisition expenses, net of ceding commissions and fronting fees   78,740       83,928       (5,188 )     (6.2 )%
Other underwriting expenses   63,962       51,233       12,729       24.8 %
Underwriting income(1)   56,547       41,956       14,591       34.8 %
Interest expense   (2,952 )     (475 )     (2,477 )     NM  
Net investment income   16,690       9,462       7,228       76.4 %
Net realized and unrealized losses on investments   (103 )     (8,369 )     8,266       (98.8 )%
Income before income taxes   70,182       42,574       27,608       64.8 %
Income tax expense   16,877       9,163       7,714       84.2 %
Net income $ 53,305     $ 33,411     $ 19,894       59.5 %
Adjustments:                              
Net realized and unrealized losses on investments(2)   103       8,369       (8,266 )     (98.8 )%
Expenses associated with transactions   229       130       99       76.2 %
Stock-based compensation expense   10,737       8,556       2,181       25.5 %
Amortization of intangibles   1,092       942       150       15.9 %
Expenses associated with catastrophe bond   1,640       1,992       (352 )     (17.7 )%
Tax impact   (1,582 )     (3,153 )     1,571       (49.8 )%
Adjusted net income(1)(2) $ 65,524     $ 50,247     $ 15,277       30.4 %
Key Financial and Operating Metrics                              
Annualized return on equity   17.6 %     11.7 %                
Annualized adjusted return on equity(1)   21.7 %     17.6 %                
Loss ratio   21.7 %     25.7 %                
Expense ratio   55.9 %     56.4 %                
Combined ratio   77.6 %     82.1 %                
Adjusted combined ratio(1)   72.1 %     77.1 %                
Diluted earnings per share $ 2.10     $ 1.29                  
Diluted adjusted earnings per share(1) $ 2.59     $ 1.95                  
Catastrophe losses $ 3,432     $ 13,529                  
Catastrophe loss ratio(1)   1.4 %     5.8 %                
Adjusted combined ratio excluding catastrophe losses(1)   70.8 %     71.4 %                
Adjusted underwriting income(1) $ 70,245     $ 53,576     $ 16,670       31.1 %


Condensed Consolidated Balance sheets

Palomar Holdings,Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except shares and par value data)
           
  September 30,     December 31,  
  2023     2022  
  (Unaudited)          
Assets              
Investments:              
Fixed maturity securities available for sale, at fair value (amortized cost: $647,579 in 2023; $561,580 in 2022) $ 591,907     $ 515,064  
Equity securities, at fair value (cost: $43,002 in 2023; $42,352 in 2022)   39,835       38,576  
Equity method investment   2,923        
Total investments   634,665       553,640  
Cash and cash equivalents   53,026       68,108  
Restricted cash   262       56  
Accrued investment income   4,864       3,777  
Premiums receivable   242,082       162,858  
Deferred policy acquisition costs, net of ceding commissions and fronting fees   58,967       56,740  
Reinsurance recoverable on paid losses and loss adjustment expenses   48,004       39,718  
Reinsurance recoverable on unpaid losses and loss adjustment expenses   232,170       153,895  
Ceded unearned premiums   259,760       204,084  
Prepaid expenses and other assets   65,753       44,088  
Deferred tax assets, net   13,643       10,622  
Property and equipment, net   433       603  
Goodwill and intangible assets, net   12,705       8,261  
Total assets $ 1,626,334     $ 1,306,450  
Liabilities and stockholders' equity              
Liabilities:              
Accounts payable and other accrued liabilities $ 32,532     $ 25,760  
Reserve for losses and loss adjustment expenses   324,348       231,415  
Unearned premiums   570,453       471,314  
Ceded premium payable   211,025       146,127  
Funds held under reinsurance treaty   14,042       10,680  
Borrowings from credit agreements   52,600       36,400  
Total liabilities   1,205,000       921,696  
Stockholders' equity:              
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022          
Common stock, $0.0001 par value, 500,000,000 shares authorized, 24,730,885 and 25,027,467 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively   3       3  
Additional paid-in capital   345,673       333,558  
Accumulated other comprehensive loss   (43,221 )     (36,515 )
Retained earnings   118,879       87,708  
Total stockholders' equity   421,334       384,754  
Total liabilities and stockholders' equity $ 1,626,334     $ 1,306,450  


Condensed Consolidated Income Statement

Palomar Holdings,Inc. and Subsidiaries
Condensed Consolidated Statements ofIncome and Comprehensive Income (loss) (Unaudited)
(in thousands, except shares and per share data)
  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2023     2022     2023     2022  
Revenues:                              
Gross written premiums $ 313,998     $ 253,128     $ 838,406     $ 642,751  
Ceded written premiums   (203,336 )     (161,930 )     (542,789 )     (374,109 )
Net written premiums   110,662       91,198       295,617       268,642  
Change in unearned premiums   (24,845 )     (13,256 )     (43,453 )     (34,403 )
Net earned premiums   85,817       77,942       252,164       234,239  
Net investment income   6,029       3,744       16,690       9,462  
Net realized and unrealized losses on investments   (1,376 )     (2,356 )     (103 )     (8,369 )
Commission and other income   465       1,362       1,781       3,129  
Total revenues   90,935       80,692       270,532       238,461  
Expenses:                              
Losses and loss adjustment expenses   16,139       30,900       54,696       60,251  
Acquisition expenses, net of ceding commissions and fronting fees   27,004       27,210       78,740       83,928  
Other underwriting expenses   22,390       17,114       63,962       51,233  
Interest expense   867       270       2,952       475  
Total expenses   66,400       75,494       200,350       195,887  
Income before income taxes   24,535       5,198       70,182       42,574  
Income tax expense   6,103       912       16,877       9,163  
Net income   18,432       4,286       53,305       33,411  
Other comprehensive income (loss), net:                              
Net unrealized losses on securities available for sale   (8,494 )     (15,412 )     (6,706 )     (47,941 )
Net comprehensive income (loss) $ 9,938     $ (11,126 )   $ 46,599     $ (14,530 )
Per Share Data:                              
Basic earnings per share $ 0.75     $ 0.17     $ 2.15     $ 1.32  
Diluted earnings per share $ 0.73     $ 0.17     $ 2.10     $ 1.29  
                               
Weighted-average common shares outstanding:                              
Basic   24,740,455       25,209,368       24,847,164       25,258,333  
Diluted   25,244,828       25,787,625       25,340,602       25,808,387  


Underwriting Segment Data

The Company has a single reportable segment and offers primarily property and casualty insurance products. Gross written premiums (GWP) by product, location and company are presented below:

  Three Months Ended September 30,                  
  2023     2022                  
  ($ in thousands)          
          % of             % of             %  
  Amount     GWP     Amount     GWP     Change     Change  
Product                                              
Fronting Premiums $ 106,581       33.9 %   $ 82,232       32.5 %   $ 24,349       29.6 %
Residential Earthquake   69,220       22.0 %     59,569       23.5 %     9,651       16.2 %
Commercial Earthquake   44,166       14.1 %     32,647       12.9 %     11,519       35.3 %
Inland Marine   37,252       11.9 %     30,842       12.2 %     6,410       20.8 %
Casualty   20,165       6.4 %     12,888       5.1 %     7,277       56.5 %
Hawaii Hurricane   11,051       3.5 %     9,425       3.7 %     1,626       17.3 %
Commercial All Risk   6,624       2.1 %     9,224       3.6 %     (2,600 )     (28.2 )%
Residential Flood   5,259       1.7 %     3,871       1.5 %     1,388       35.9 %
Other   13,680       4.4 %     12,430       5.0 %     1,250       10.1 %
Total Gross Written Premiums $ 313,998       100.0 %   $ 253,128       100.0 %   $ 60,870       24.0 %


  Nine Months Ended September 30,                  
  2023     2022                  
  ($ in thousands)          
          % of             % of                
  Amount     GWP     Amount     GWP     Change     Change  
Product                                              
Fronting Premiums $ 278,548       33.2 %   $ 154,232       24.0 %   $ 124,316       80.6 %
Residential Earthquake   190,048       22.7 %     159,995       24.9 %     30,053       18.8 %
Commercial Earthquake   124,763       14.9 %     90,894       14.1 %     33,869       37.3 %
Inland Marine   103,841       12.4 %     72,214       11.2 %     31,627       43.8 %
Casualty   50,144       6.0 %     25,697       4.0 %     24,447       95.1 %
Hawaii Hurricane   28,718       3.4 %     24,579       3.8 %     4,139       16.8 %
Commercial All Risk   26,769       3.2 %     41,647       6.5 %     (14,878 )     (35.7 )%
Residential Flood   14,964       1.8 %     10,448       1.6 %     4,516       43.2 %
Specialty Homeowners   (99 )     (0.0 )%     30,082       4.7 %     (30,181 )     (100.3 )%
Other   20,710       2.4 %     32,963       5.2 %     (12,253 )     (37.2 )%
Total Gross Written Premiums $ 838,406       100.0 %   $ 642,751       100.0 %   $ 195,655       30.4 %


  Three Months Ended September 30,     Nine Months Ended September 30,  
  2023     2022     2023     2022  
  ($ in thousands)     ($ in thousands)  
          % of             % of             % of             % of  
  Amount     GWP     Amount     GWP     Amount     GWP     Amount     GWP  
State                                                              
California $ 163,806       52.2 %   $ 131,016       51.8 %   $ 450,752       53.8 %   $ 292,865       45.6 %
Texas   24,336       7.7 %     26,234       10.4 %     72,777       8.7 %     71,499       11.1 %
Washington   17,792       5.7 %     13,573       5.4 %     43,409       5.2 %     29,391       4.6 %
Hawaii   13,490       4.3 %     10,998       4.3 %     35,824       4.3 %     29,729       4.6 %
Florida   11,549       3.7 %     7,445       2.9 %     36,309       4.3 %     27,216       4.2 %
Oregon   8,536       2.7 %     7,738       3.1 %     21,223       2.5 %     16,483       2.6 %
Illinois   6,502       2.1 %     4,204       1.7 %     15,675       1.9 %     13,153       2.0 %
Tennessee   5,562       1.8 %     1,810       0.7 %     9,233       1.1 %     4,247       0.7 %
Other   62,425       19.8 %     50,110       19.8 %     153,204       18.2 %     158,168       24.6 %
Total Gross Written Premiums $ 313,998       100.0 %   $ 253,128       100.0 %   $ 838,406       100.0 %   $ 642,751       100.0 %


  Three Months Ended September 30,     Nine Months Ended September 30,  
  2023     2022     2023     2022  
  ($ in thousands)     ($ in thousands)  
          % of             % of             % of             % of  
  Amount     GWP     Amount     GWP     Amount     GWP     Amount     GWP  
Subsidiary                                                              
PSIC $ 186,693       59.5 %   $ 136,814       54.0 %   $ 497,216       59.3 %   $ 357,156       55.6 %
PESIC   127,305       40.5 %     116,314       46.0 %     341,190       40.7 %     285,595       44.4 %
Total Gross Written Premiums $ 313,998       100.0 %   $ 253,128       100.0 %   $ 838,406       100.0 %   $ 642,751       100.0 %


Gross and net earned premiums

The table below shows the amount of premiums the Company earned on a gross and net basis and the Company’s net earned premiums as a percentage of gross earned premiums for each period presented:

  Three Months Ended                     Nine Months Ended                  
  September 30,                     September 30,                  
  2023     2022     Change     % Change     2023     2022     Change     % Change  
  ($ in thousands)     ($ in thousands)  
Gross earned premiums $ 271,786     $ 186,938     $ 84,848       45.4 %   $ 739,219     $ 484,005     $ 255,214       52.7 %
Ceded earned premiums   (185,969 )     (108,996 )     (76,973 )     70.6 %     (487,055 )     (249,766 )     (237,289 )     95.0 %
Net earned premiums $ 85,817     $ 77,942     $ 7,875       10.1 %   $ 252,164     $ 234,239     $ 17,925       7.7 %
                                                               
Net earned premium ratio   31.6 %     41.7 %                     34.1 %     48.4 %                


Loss detail

  Three Months Ended                     Nine Months Ended                  
  September 30,                     September 30,                  
  2023     2022     Change     % Change     2023     2022     Change     % Change  
  ($ in thousands)     ($ in thousands)  
Catastrophe losses $ (533 )   $ 12,500     $ (13,033 )     (104.3 )%   $ 3,432     $ 13,529     $ (10,097 )     (74.6 )%
Non-catastrophe losses   16,672       18,400       (1,728 )     (9.4 )%     51,264       46,722       4,542       9.7 %
Total losses and loss adjustment expenses $ 16,139     $ 30,900     $ (14,761 )     (47.8 )%   $ 54,696     $ 60,251     $ (5,555 )     (9.2 )%


The following table represents a reconciliation of changes in the ending reserve balances for losses and loss adjustment expenses:

  Three Months Ended September 30,     Nine Months Ended September 30,  
  2023     2022     2023     2022  
  (in thousands)     (in thousands)  
Reserve for losses and LAE net of reinsurance recoverables at beginning of period $ 81,300     $ 55,769     $ 77,520     $ 45,419  
Add: Incurred losses and LAE, net of reinsurance, related to:                              
Current year   15,116       30,904       50,954       58,703  
Prior years   1,023       (4 )     3,742       1,548  
Total incurred   16,139       30,900       54,696       60,251  
Deduct: Loss and LAE payments, net of reinsurance, related to:                              
Current year   6,646       7,873       14,215       13,762  
Prior years   (1,385 )     4,548       25,823       17,660  
Total payments   5,261       12,421       40,038       31,422  
Reserve for losses and LAE net of reinsurance recoverables at end of period   92,178       74,248       92,178       74,248  
Add: Reinsurance recoverables on unpaid losses and LAE at end of period   232,170       131,575       232,170       131,575  
Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE at end of period $ 324,348     $ 205,823     $ 324,348     $ 205,823  


Reconciliation of Non-GAAP Financial Measures

For the three and nine months ended September 30, 2023 and 2022, the Non-GAAP financial measures discussed above reconcile to their most comparable GAAP measures as follows:

Underwriting revenue

  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2023     2022     2023     2022  
  (in thousands)     (in thousands)  
Total revenue $ 90,935     $ 80,692     $ 270,532     $ 238,461  
Net investment income   (6,029 )     (3,744 )     (16,690 )     (9,462 )
Net realized and unrealized losses on investments   1,376       2,356       103       8,369  
Underwriting revenue $ 86,282     $ 79,304     $ 253,945     $ 237,368  


Underwriting income and adjusted underwriting income

  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2023     2022     2023     2022  
  (in thousands)     (in thousands)  
Income before income taxes $ 24,535     $ 5,198     $ 70,182     $ 42,574  
Net investment income   (6,029 )     (3,744 )     (16,690 )     (9,462 )
Net realized and unrealized losses on investments   1,376       2,356       103       8,369  
Interest expense   867       270       2,952       475  
Underwriting income $ 20,749     $ 4,080     $ 56,547     $ 41,956  
Expenses associated with transactions   229       45       229       130  
Stock-based compensation expense   3,589       3,092       10,737       8,556  
Amortization of intangibles   390       313       1,092       942  
Expenses associated with catastrophe bond               1,640       1,992  
Adjusted underwriting income $ 24,957     $ 7,530     $ 70,245     $ 53,576  


Adjusted net income

  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2023     2022     2023     2022  
  (in thousands)     (in thousands)  
Net income $ 18,432     $ 4,286     $ 53,305     $ 33,411  
Adjustments:                              
Net realized and unrealized losses on investments   1,376       2,356       103       8,369  
Expenses associated with transactions   229       45       229       130  
Stock-based compensation expense   3,589       3,092       10,737       8,556  
Amortization of intangibles   390       313       1,092       942  
Expenses associated with catastrophe bond               1,640       1,992  
Tax impact   (725 )     (871 )     (1,582 )     (3,153 )
Adjusted net income $ 23,291     $ 9,221     $ 65,524     $ 50,247  


Annualized adjusted return on equity

  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2023     2022     2023     2022  
  (in thousands)     (in thousands)  
                               
Annualized adjusted net income $ 93,164     $ 36,884     $ 87,365     $ 66,996  
Average stockholders' equity $ 417,521     $ 372,955     $ 403,044     $ 381,007  
Annualized adjusted return on equity   22.3 %     9.9 %     21.7 %     17.6 %


Adjusted combined ratio

  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2023     2022     2023     2022  
  (in thousands)     (in thousands)  
Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income $ 65,068     $ 73,862     $ 195,617     $ 192,283  
Denominator: Net earned premiums $ 85,817     $ 77,942     $ 252,164     $ 234,239  
Combined ratio   75.8 %     94.8 %     77.6 %     82.1 %
Adjustments to numerator:                              
Expenses associated with transactions $ (229 )   $ (45 )   $ (229 )   $ (130 )
Stock-based compensation expense   (3,589 )     (3,092 )     (10,737 )     (8,556 )
Amortization of intangibles   (390 )     (313 )     (1,092 )     (942 )
Expenses associated with catastrophe bond               (1,640 )     (1,992 )
Adjusted combined ratio   70.9 %     90.3 %     72.1 %     77.1 %


Diluted adjusted earnings per share

  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2023     2022     2023     2022  
  (in thousands, except per share data)     (in thousands, except per share data)  
                               
Adjusted net income $ 23,291     $ 9,221     $ 65,524     $ 50,247  
Weighted-average common shares outstanding, diluted   25,244,828       25,787,625       25,340,602       25,808,387  
Diluted adjusted earnings per share $ 0.92     $ 0.36     $ 2.59     $ 1.95  


Catastrophe loss ratio

  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
    2023       2022       2023       2022  
  (in thousands)     (in thousands)  
Numerator: Losses and loss adjustment expenses $ 16,139     $ 30,900     $ 54,696     $ 60,251  
Denominator: Net earned premiums $ 85,817     $ 77,942     $ 252,164     $ 234,239  
Loss ratio   18.8 %     39.6 %     21.7 %     25.7 %
                               
Numerator: Catastrophe losses $ (533 )   $ 12,500     $ 3,432     $ 13,529  
Denominator: Net earned premiums $ 85,817     $ 77,942     $ 252,164     $ 234,239  
Catastrophe loss ratio   (0.6 )%     16.0 %     1.4 %     5.8 %


Adjusted combined ratio excluding catastrophe losses

  Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
  2023     2022     2023     2022  
  (in thousands)     (in thousands)  
Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income $ 65,068     $ 73,862     $ 195,617     $ 192,283  
Denominator: Net earned premiums $ 85,817     $ 77,942     $ 252,164     $ 234,239  
Combined ratio   75.8 %     94.8 %     77.6 %     82.1 %
Adjustments to numerator:                              
Expenses associated with transactions $ (229 )   $ (45 )   $ (229 )   $ (130 )
Stock-based compensation expense   (3,589 )     (3,092 )     (10,737 )     (8,556 )
Amortization of intangibles   (390 )     (313 )     (1,092 )     (942 )
Expenses associated with catastrophe bond               (1,640 )     (1,992 )
Catastrophe losses   533       (12,500 )     (3,432 )     (13,529 )
Adjusted combined ratio excluding catastrophe losses   71.5 %     74.3 %     70.8 %     71.4 %


Tangible Stockholders equity

  September 30,     December 31,  
  2023     2022  
  (in thousands)  
Stockholders' equity $ 421,334     $ 384,754  
Goodwill and intangible assets   (12,705 )     (8,261 )
Tangible stockholders' equity $ 408,629     $ 376,493  

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Source: Palomar Holdings, Inc